They’re better than the alternative: regulation by bureaucrats.
In 2011, the U.S. Supreme Court decided a case called AT&T Mobility v. Concepcion. The case pitted a class of cell-phone customers against AT&T. The customers claimed they had been defrauded by advertisements promising them a free phone when, in fact, AT&T charged them $30 for sales tax on the phone.
The question in the case was not whether the advertisements were fraudulent. Instead, the question was whether the customers could band together in a class-action lawsuit at all. AT&T’s agreements not only obligated customers to bring all disputes to arbitration but said they could do so only individually; they “waived” their right to seek redress as part of a class.
It was apparent to all concerned that, without some device like the class action to aggregate small $30 claims, it would be very hard for consumers to hold AT&T accountable. Who would sue over $30? Who would go to individual arbitration? As a famous federal judge once answered, “only a lunatic or a fanatic.”
Enter the U.S. Chamber of Commerce. Not to worry, the Chamber told the Supreme Court, there is a solution to this problem: “federal regulators.”
You heard that right: “federal regulators.”
With great respect to the Chamber, “federal regulators” are not the conservative way to police the marketplace. The last time I checked, the conservative legal movement was — rightly! — doing its level best to undo the federal administrative state.
And yet the conservatives on the U.S. Supreme Court sided with the Chamber in the AT&T case, and, at the Chamber’s behest, Republicans in Congress have been trying to do away with class actions for years.
In the face of this alchemy, I did the only thing I know how to do. I wrote a book. And I called it “The Conservative Case for Class Actions.”
I hope these are things I know something about. I have been studying class-action lawsuits for over twelve years as an academic after representing big companies against them for years as a private lawyer. I have been traveling in conservative circles for even longer. I was a law clerk to Justice Scalia and I worked for John Cornyn. I have been a member of the Federalist Society my entire adult life and have never voted for a Democrat for president.
Let me begin by noting that even we conservatives believe that marketplaces need at least some policing. No one believes in complete and total laissez-faire. From the father of the Chicago School, Milton Friedman, to the father of the Austrian School, Friedrich Hayek, those of us on the right agree that our markets need a legal framework that must include at least three prohibitions: no breaching contracts, no fraud, and no price fixing.
The question is how to enforce these legal rules. The answer is not federal agencies. For all the same reasons we prefer other private-sector solutions to problems, for most of the 20th century, conservatives preferred private enforcement of the law as well.
Drawing on the privatization literature that became popular during the tenures of Margaret Thatcher and Ronald Reagan, I think there are six reasons for this: smaller government is better than bigger, self-help is better than government dependence, the profit motive leads the private sector to perform better, the private sector has greater resources, the private sector is less compromised by special interests (such as the Chamber), and the private sector is less centralized.
This is not just theory. There are data, too. Who recovers more from companies that commit securities fraud every year: private class-action lawyers or the Securities and Exchange Commission? It is no contest: Private lawyers beat the SEC by an order of magnitude. The same is true of private lawyers versus the Department of Justice’s Antitrust Division.
Profit-motivated class-action lawyers recover more for their clients than do salaried government lawyers. This shouldn’t surprise us.
Is it possible that the profit motive will lead class-action lawyers to sue too much? Of course it is. It is possible that any profit motive will lead anyone to go too far — including corporations. But the conservative solution is not to turn over our industries to government. The conservative solution is to put rules into place that harness the profit motive in socially useful ways. We do that for corporations with those rules against breach of contract, fraud, and price fixing. We can do it for class-action lawyers as well.
Indeed, not only can we, but we already have. Most class actions these days must be filed before independent federal judges, and the meritless ones can be quickly and cheaply dismissed at the very outset of the case. In addition, judges must certify every case as appropriate for class treatment, approve every settlement, and award every dime of attorneys’ fees.
Despite some of the arguments from the U.S. Chamber, the data suggest that judges are exercising these powers responsibly. The vast majority of class-action cases are not meritless: the eleven-inch Subway “foot-long” case that the Chamber likes to talk about is an extreme outlier. Moreover, class-action lawyers are not getting all the money: If you add up every penny they are awarded in fees, it comes to only 15 percent of what defendants pay out in class settlements. Fifteen percent! The rest of the money goes to class members or, if they cannot be found, to charity — but not to the lawyers.
Of course, improvements can be made, and I recommend tightening up our class-action system in various ways in my book. But with or without these reforms, we should prefer to police our marketplaces with private citizens represented by private lawyers in front of independent judges over the Chamber’s “federal regulators.” As Milton Friedman frequently reminded us, big businesses are not the best source from which to learn what is good for conservative principles.
Indeed, the Chamber is not the first to argue that the way to right wrongs in the marketplace is federal agencies rather than class-action lawsuits. In 1978, a bill was introduced in Congress to do just that; it would have abolished consumer class actions and replaced them with a federal agency.
That bill was introduced by Ted Kennedy.
At the behest of Jimmy Carter.
With due respect to the Chamber, we shouldn’t be taking advice from Ted Kennedy and Jimmy Carter.